Can I Deduct My Home Office on My Taxes?
Mask mandates have lifted around the country and more workers are returning to their on-site offices and cubicles. According to a survey for Fortune magazine, about three-fourths of workers said they were returning to their on-site office in 2022. That means 25% of the respondents will continue to work from home, perhaps indefinitely.
Throughout 2021, many office workers punched the clock from home either because their offices remained closed, or they received permission from their employer to do so. These workers turned their dining rooms, guest bedrooms, and screened-in porches into their workspaces. Some bought desks, bookshelves, filing cabinets, and other equipment to transform the environment for their work.
Unfortunately, the purchases you made to create your workspace aren’t tax-deductible in most cases. The tax return preparation professionals at Scaringi Law can sort through your specific circumstances to determine your allowable deductions.
Working from Home as an Employee
The home office deduction allows certain taxpayers to deduct expenses attributable to the business use of their homes. The increasing questions about home office deductions led the Congressional Research Service to publish an Insight document that addresses this specific issue.
The published guidance said that “employees who have moved from onsite work to working from home as a result of the pandemic are not able to claim this benefit for the work they do for their employers.” If you receive a W-2 from your employer, you won’t be eligible to take this deduction.
Prior to 2018, some employees were eligible to deduct the use of their home as a miscellaneous itemized deduction. The 2017 Tax Cuts and Jobs Act (TCJA) made several changes, including the ability to take the itemized deduction. This and other tax changes are set to expire in 2025. Certain employees who itemize their deductions may be able to claim the benefit beginning in 2026.
Working from Home as Self-Employed
If you quit your job in 2021 as part of the Great Resignation and started your own business, you may be entitled to take a home office deduction. Those who are self-employed, independent contractors, or gig workers might qualify.
To be eligible, you must use part of your home or a separate structure on your property exclusively as your primary place of business. Your child cannot also use the space to do homework, nor can it double as a rec room or spillover for guests. This is where you greet clients, conduct your business, and store inventory. The IRS defines “home” as a house, apartment, mobile home, boat, or other similar property.
Taking the Home Office Deduction
Qualifying taxpayers can use one of two ways to calculate their home-office deduction. The simplest way is to take a deduction of $5 per square foot of your home office. This method allows for up to 300 feet creating a $1,500 cap.
The regular method is more complicated because you will have to keep track of all your expenses. You can deduct indirect expenses based on the percentage of your home that’s used as an office. Indirect expenses include utilities, rent, and mortgage. Direct expenses, such as office furniture and fixtures, can be fully deducted.
Triggering an IRS Audit
The probability of more taxpayers attempting a home office deduction has led some to say doing so would be a red flag to the IRS and increase your chances of an IRS tax audit. If you qualify, by all means, take the deduction. You should be fine if the office is truly used exclusively for your work that is not for a W-2 employer, and personal activities invade the home office no more than would be permitted in an office building.
Helping Clients Minimize Their Tax Liabilities
No one wants to pay more in taxes than is absolutely necessary. You can be assured of comprehensive tax advice from Scaringi Law. We will help you keep every dollar you are entitled to and guide you through all tax considerations if you worked remotely in 2021. If you are a small business owner, gig worker, or independent contractor, contact the tax powerhouses at Scaringi Law. We can help you uncover the industry-specific deductions you qualify for.
Talk to a Scaringi Law attorney who has a comprehensive understanding of how tax law affects you. Call (717) 775-7195 or submit our online form to schedule a free consultation.